Pfizer and Merck: Different Strokes

December 20, 2004

By Amy Tsao Big Pharma rivals Merck (MRK) and Pfizer (PFE) have reacted differently to the safety issues swirling around their respective arthritis pain drugs, Vioxx and Celebrex. How the drug giants have handled their high-profile problems offers a glimpse into each outfit's culture and management team, and their differing approaches also may provide investors with clues about which is best positioned to handle the fallout in the long term.

Merck, battered by disappointments in its new-drug pipeline and long-running Wall Street criticism, decided in late September that its best move was to withdraw Vioxx. That decision followed the release of a long-term study showing an elevated risk of heart attacks and strokes in patients who took the drug.

VALUED PERCEPTIONS. Pfizer, until recently the world's largest drug company, disclosed on Dec. 17 that Celebrex at higher doses also increased the risk of cardiovascular problems. However, the New York City-based outfit says it won't be taking its product off the market, although it has agreed to stop advertising it to consumers. "It's not Pfizer's style to withdraw a drug," says Al Rauch, analyst at A.G. Edwards. "Pfizer is more market-driven."

Some experts say Pfizer's strategy may reflect its relatively stronger financial record of recent years. Chairman and CEO Hank McKinnell until recently had kept Wall Street satisfied by using large mergers to sustain above-average growth. That's not the case with Ray Gilmartin, Merck's CEO, who has been under enormous investor pressure after several late-stage trials of new drugs failed over the past 18 months. Indeed, some investors have been calling for Gilmartin to make an early departure from the Whitehouse Station (N.J.)-based company before his planned 2006 retirement.

Certainly, Merck has a reputation for being a business built on scientific achievement and servicing public health. "In a lot of ways Merck is very concerned about how they're perceived by the medical community," says Rauch. And that intense focus on physicians' perceptions may have come at the expense of investors' impressions, experts say.

"FUNDAMENTAL ERRORS." Some analysts believe Merck could have taken a more measured approach in response to September's release of the long-term study, especially since it had known for years about possible problems. There were "some fundamental errors" in the handling of safety issues with Vioxx, says Jonathan Bernstein, president of Bernstein Crisis Management in Monrovia, Calif. The embattled company worked hard to give the impression that the drug was being recalled speedily once the results of the study were made public, Bernstein adds. However, some doctors emerged who accused Merck of ignoring for years their concerns over elevated cardiovascular risks.

In the months since the Vioxx withdrawal, however, Pfizer's management worked hard to project an image of confidence, insisting Celebrex was no Vioxx. Execs pointed to the fact that cardiovascular side effects hadn't been a problem during the drug's trials as a preventive measure in colon cancer. Pfizer ratcheted up ad spending, anticipating that physicians would switch Vioxx users to Celebrex.

Even now, as data show Celebrex may increase heart-attack risks, Pfizer has appeared less in a hurry to pull the drug. True, the company can afford to take a less radical posture since Celebrex is the only remaining option for patients who can't take older-style pain relievers. "Pfizer is keeping it on the market and letting doctors decide the risk-reward ratio," says Rauch. This tactic also effectively shifts inappropriate use to physicians and patients.

THE BIG UNKNOWN. In the end, analysts generally anticipate that federal regulators will allow Celebrex to stay on the market. "Celebrex is a safe drug when used as indicated," says Viren Mehta, analyst at Mehta Partners. Mehta predicts the Food & Drug Administration will ultimately tell Pfizer to put a stronger warning label on the drug.

Pfizer is certainly taking a calculated risk by not withdrawing Celebrex. "They're saying they won't overly hype the drug, but also that it...isn't the same as Vioxx, and they don't need to withdraw," says Arthur Caplan, chairman of medical ethics at the University of Pennsylvania Medical School, who adds that it may be "a good interim position to take."

The big unknown remains the legal fallout, the ramifications of which won't become clear for some time. It's hard to determine how the courts might view the different routes taken by the respective drugmakers. Still, no one is particularly optimistic that these drugs -- known as Cox-2 inhibitors -- have much of a future. "No matter what strategy these companies take," says Caplan, "this is one of the great drug-company disasters of all time." Tsao is a reporter for BusinessWeek Online in New York